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Discuss the relationship between unemployment and inflation. To what extent is the Phillips curve still relevant?
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| Submitted: Sun Dec 15 2002
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Discuss the relationship between unemployment and inflation. To what extent is the Phillips curve still relevant? Professor Phillips, using figures from the 1870s to the 1950s showed that there was a relationship between unemployment and inflation, and using the data collected, modelled this relationship on a curve, which became known as the Phillips curve. The basic theory was that attempts to reduce unemployment would lead to a rise in the general price level, or inflation, and vice-versa. The Phillips curve is shown below: Inflation and unemployment both have a negative effect on the economy, if either factor is high. Both factors have a negative effect on economic growth. Unemployment is the existence of a section of the labour force, who are willing and able to work but who, for some reason, are unemployed. In the UK unemployment is measured using two methods: The Claimant Count and The Labour Force...
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